High valuation and rising cost drag leave MRF on a slippery slope
Rising raw-material costs and lagging price hikes threaten to squeeze MRF’s margins further, leaving its rich valuation vulnerable to ongoing earnings misses.
Tyre maker MRF is poised to see increased margin pressure in the coming quarters of FY27 unless raw-material prices ease or price hikes accelerate. Its performance in the June quarter (Q1FY27) was subdued, mainly marred by cost inflation. Standalone revenue rose 10% year-on-year to ₹ 8,291.56 crore, aided by replacement and original equipment manufacturer (OEM) demand as well as calibrated price hikes.
Still, it missed consensus estimates. Adjusted profit after tax declined 2% to ₹ 474.37 crore and was heavily insulated by a 53% surge in other income to ₹ 191.48 crore. Ebitda dropped 8% year-on-year to ₹ 948.6 crore, hit by a massive 570 basis points (bps) sequential dip in gross margins to 32.7% due to intense input cost inflation.
While MRF raised prices and optimized costs, these measures failed to fully absorb the margin blow. Management said ongoing conflicts in the Middle East and related supply-chain disruptions have kept natural rubber and crude derivatives firm, and the impact of higher costs on margins is likely to continue. While input-cost inflation is an industry-wide challenge, MRF’s sluggish top-line growth and modest price hikes leave it more vulnerable than its peers.
Anand Rathi Share and Stock Brokers noted that while MRF has undertaken single-digit price hikes in the replacement market to cushion the blow, these increases still lag behind those of its listed peers. The brokerage warned of an 8-10% rise in MRF’s raw-material basket in Q2FY27. Ceat and Apollo Tyres saw revenue rise 18% and 16%, respectively, in Q1FY27. However, sequentially gross margin contracted by 620 bps for Ceat and 550 bps for Apollo Tyres . Earnings prospects of the tyre industry are sensitive to changes in input costs, making margin trends crucial. However, a company's ability to raise prices depends heavily on demand and competitive pressures, which could test the sector's profitability.
Additionally, rising competition from railways, especially along the Western Dedicated Freight Corridor, threatens to curb replacement demand for medium and heavy commercial vehicles (M&HCVs). “The entry of new players like Balkrishna Industries will also pose a threat to market share (leading to aggressive pricing wars that could also impact near-term profitability),” said Centrum Broking.
These competitive pressures come at a precarious time for MRF. Standalone Ebitda slumped to a six-quarter low of ₹ 948.60 crore, while operating margin hit a multi-quarter low. Consequently, MRF stock is down around 13% so far in 2026 and trades at an expensive 20 times estimated FY28 earnings, according to Bloomberg data.
